logo
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

 

Equities – Your destination to connect with the growth investment community.

Breaking Up Microsoft (MSFT) is a No-Brainer

  +Follow December 12, 2013 8:44AM
Share:
Tickers Mentioned:

In one of the most famous scenes of the movie Wall Street antagonist Gordon Gekko explains to neophyte trader Bud Fox why he decided he was going to liquidate the fictional Bluestar Airline: “Because it’s wreckable.”

He did not mean it’s wreckable in the sense that something should be destroyed because it can be destroyed, but rather that that the company was worth more to the world in pieces than as a whole. And actually, with large companies, this is very often the case.

The kernel of truth in the unrepentant capitalist Gekko’s statement is that often, monolithic companies have become lumbering giants, inefficient behemoths that lack focus and waste billions supporting an overweight structure.

Sound like Microsoft (MSFT) ? And the truth is if Microsoft were ever to be broken up, billions in potential value could be unlocked.

Kill the Beast! Kill the Beast!

Microsoft is one of the most unwieldy companies on the planet. It is a burgeoning mass made up of a famously uncooperative mass of disparate departments, united in name only.

There’s their software division. There’s their video game division and the reasonably successful Xbox series. There’s the unmitigated stinking disaster that is Bing. Not to mention tablets and the expected foray into smartphones following the Nokia acquisition.

That’s a lot of different directions to go in. And it comes at a time when the company is about to lose its bald head, the much derided Steve Ballmer.

The question for stockholders is what the most profitable decision is: trying to find someone who can maneuver the company over all that ground, or end the once undisputed king of tech into smaller, less dominant, but theoretically more nimble compenents?

Not “One Micorsoft,” But Two, or Three…

Several months ago Ballmer announced the “One Microsoft” initiative, aimed at directing the company in a coherent direction. At the same time, pundits were already imagining what it would look like to take the ax to Microsoft and split it like a cord of wood.

Analysts imagined at first a clean split of the company: one consumer tech (Windows, Office, Xbox) and one business-centric (SharePoint, Azure, Dynamics).  But since fall 2013, analyst opinion has begun to include the ideas of splitting Microsoft into even smaller, more specialized parts.

Jim Cramer suggested splitting Microsoft into three businesses: a software business; and “entertainment” business to handle the likes of Xbox; and a cellphone business – essentially, Nokia with more capital. Presumably, this would mean ending the multi-billion dollar failure of Bing, a proposition some of Ballmer’s possible successors have floated.

The value unlocked in this kind of breakup would be massive. Killing Bing alone would put an end to billions in lost income. And refocusing software could help reasserts Microsoft’s position in operating systems, a market currently dominated by Apple Inc. (AAPL) .

But it’s not just pundits calling for Microsoft’s head. It’s also one of the founders.

On Nov. 4 Microsoft co-founder Paul Allen’s money manager, reportedly speaking for Mr. Allen, called search and Xbox a “distraction” and recommended spinning them off.

How Much Could be Unlocked?

That’s the million dollar question. Or, more likely, multi-billion dollar question.

Rick Sherlund, an analyst at Nomura Securities, suggested if Microsoft spun off Bing and Xbox, they could increase their dividend to a whopping 6 percent, making it the highest-yielding large cap tech company for stockholders.

Others have argued that an “online services” division, comprised of Bing, MSN, and adCenter costs the company $8.1 billion a year in losses. Spinning off those companies alone would allow a massive buyback, dividend increase, or possibly both. The exact value derived from a breakup is uncertain, but there's little reason to believe it wouldn't total in the billions.

Is There a Reason to Keep Microsoft Whole?

Breaking up is hard to do, and in the case of multibillion dollar behemoths, is almost irreversible. Once the decision is made to split, the company can’t really go back on it. Once Xbox or Bing is sold off to another company, you can’t exactly ask for it back. So is there value in keeping it together?

To be sure, Microsoft’s stock this year has not been an outright disappointment. A 37.98 percent return on the year has it outpacing the gains of the otherwise robust S&P 500. And only the largest of companies can do things like institute $40 billion dollar buybacks.

Breaking up also might be easier said than done. Preston Gralla of ComputerWorld argues that Bing, however costly, is too integral to their other products to ever be killed.

But just because Microsoft has increased in value, and just because the poisonous Bing has wormed its way into several other lines, does not means more value won't be extracted long term form extrication. revenue does not mean more could not be unlocked via breakup.

And it’s almost impossible to argue that Microsoft’s incredibly disparate departments work better together. The corproate culture there is notoriously toxic, and there has been little indication "One Microsoft" has rectified this.

Microsoft should pick their next successor soon. The best thing he or she could do is take Microsoft and take the hammer to it.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Signup for our daily newsletter and get our best articles emailed right to you!

Results for MSFT
Sentiquant
5 May 15 05:00:06
#sentishiftdown $MSFT $QQQ $CRM $F $CVX $YELP $BIDU $ODP $BWP $BABA #sentiquant 20150505 08:00:06:262
Quantified Alpha
5 May 15 04:41:10
Expect long term outperformance from $MSFT. The 'smart money' is very bullish, & company has strong earnings momentum http://t.co/5WINeuOdon
10X Trading
5 May 15 04:40:37
ModernGraham Quarterly Valuation Of Microsoft Corporation http://t.co/Es2VPQc4pE $MSFT
StockNewsWires
5 May 15 04:37:04
$NOK $MSFT: Technology Movers: Nokia Corporation (ADR) (NYSE:NOK ...: http://t.co/8YyZXWa7RP
CyberSecur
5 May 15 04:22:46
RT @MarkMcCabe95: $MSFT bangs the #cybersecurity drum with Advanced Threat #Analytics | Ars Technica | 5.5.15 http://t.co/Bx0PqAalGt
Mark McCabe
5 May 15 04:21:07
$MSFT bangs the #cybersecurity drum with Advanced Threat #Analytics | Ars Technica | 5.5.15 http://t.co/Bx0PqAalGt
WLST.com
5 May 15 04:07:44
Microsoft Corporation (NASDAQ:MSFT) Invites Journalists To Try Out The New HoloLens - TickerLens $MSFT #wlst http://t.co/WNUroy3aI8
WLST.com
5 May 15 04:07:40
Microsoft (NASDAQ MSFT) Stock News: Microsoft unveils Hologram Technology - TickerLens $MSFT #Microsoft,MSFT #wlst http://t.co/wMUoXtnd1A
TickerLens Microsoft
5 May 15 04:07:23
Microsoft Corporation (NASDAQ:MSFT) Invites Journalists To Try Out The New HoloLens http://t.co/AIo7EJptHf $MSFT
TickerLens Microsoft
5 May 15 04:07:23
Microsoft (NASDAQ MSFT) Stock News: Microsoft unveils Hologram Technology http://t.co/hevTpDBhIK $MSFT
Chayton Falke
5 May 15 04:05:10
#Nasdaq100 #recent #market #exit #1: Sold $MSFT long for a 19.07% #gain in 20 days. #MSFT #forex #trading #stocks
#SocialMedia NC
5 May 15 03:58:17
Microsoft bangs the cybersecurity drum with Advanced Threat Analytics -… http://t.co/yAiA0ydp81 #Microsoft • $MSFT http://t.co/jgEnprwKI4
ProVesting
5 May 15 03:57:01
$GOOGL $MSFT: Google bought this app to help schedule your life: http://t.co/7jrBlZUXP7
Forex First Aids
5 May 15 03:33:37
RT @ivolatility: Stocks with implied volatility below IV index mean; General Electric $GE 16, Microsoft $MSFT 18 according to http://t.co/U…
IVolatility
5 May 15 03:31:45
Stocks with implied volatility below IV index mean; General Electric $GE 16, Microsoft $MSFT 18 according to http://t.co/Uzqv5XeD8Y
WLST.com
5 May 15 03:31:29
ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT) - TickerLens $MSFT #Microsoft,MSFT #wlst http://t.co/22o5X85sG2
TickerLens Microsoft
5 May 15 03:31:23
ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT) http://t.co/qCPHiwI2yZ $MSFT
ProVesting
5 May 15 03:27:04
$MSFT: Microsoft Corporation (NASDAQ:MSFT) Invites Journalists To Try ...: http://t.co/na9zKNDOms
FinancePress
5 May 15 03:15:17
$MSFT Microsoft Corporation To Let You Flip The Bird With Middle Finger Emoji Support: Microsoft Corporation ... http://t.co/oDfULS7G3z
Breaking News
5 May 15 03:12:02
$MSFT $BRK.A: Bill Gates: Capitalism is the wrong incentive here: http://t.co/NLpDnxiIlD
Insider Monkey
5 May 15 03:11:08
RT @esimong: "@insidermonkey: Best Technology Value Stocks? Donald Yacktman Thinks These Are Them http://t.co/eDi8XIyYLL $ORCL, $CSCO, $MSF…
Stock Wire
5 May 15 03:08:13
Microsoft Corporation To Let You Flip The Bird With Middle Finger Emoji Support $MSFT http://t.co/u5oNIBJac2
12Stocks.com
5 May 15 03:01:03
Weekly Dow #Stocks Trend $MRK $JPM $DIS $XOM $GS $CAT $IBM $VZ $INTC $GE $AXP $MSFT $NKE $UTX $UNH $KO $WMT $JNJ @ http://t.co/TvzJfd0RGT
equities.com
5 May 15 02:52:04
Jeff Kagan: New Book, Stroke Recovery Stories $MSFT $goog $aapl $BKS $amzn http://t.co/NFVO2Kihyn
Eugenio Simón
5 May 15 02:50:59
"@insidermonkey: Best Technology Value Stocks? Donald Yacktman Thinks These Are Them http://t.co/eDi8XIyYLL $ORCL, $CSCO, $MSFT, $EBAY"
[ Cyber Security ]
5 May 15 02:40:16
RT @getinmicrosoft: @microsoft bangs the cybersecurity drum with Advanced Threat Analytics. https://t.co/6gHnIBDyYY $msft http://t.co/mAlZZ…
TalkMarkets
5 May 15 02:34:38
#WarrenBuffett Reiterates Confidence In #IBM, #CocaCola’s Future $BRK.A $BRK.B $IBM $KO $AMZN $MSFT http://t.co/IbDvU8HsJ0
[ Microsoft News ]
5 May 15 02:17:35
@microsoft bangs the cybersecurity drum with Advanced Threat Analytics. https://t.co/6gHnIBDyYY $msft http://t.co/mAlZZURx3C
FinancePress
5 May 15 02:02:16
$MSFT ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT): ModernGraham Quarterly Valuation Of M... http://t.co/NdT6F9Jqfu
Stock Wire
5 May 15 01:49:17
ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT) $MSFT http://t.co/w25MpYkq9q
Bradley
5 May 15 01:49:05
Great FREE #tutorial here for #traders http://t.co/LEJZ0NzJO6 $NFLX $BAC $AMZN $MSFT $AAPL $GOOG $GOOGL $FEYE http://t.co/4Veoc0cu76
PennyStock Zone
5 May 15 01:48:37
Connor Bruggeman SchoolTrader made $300,000 in 1 yr while in high school http://t.co/w3kYAgQOUj $REGN $MSFT $BIIB $CELG $XLF $UNH
Pain Capital
5 May 15 01:47:48
RT @insidermonkey: Other hedge funds are pitching ValueAct's stock picks at #Sohn2015 First Lone Pine pitching $MSFT now Ackman $VRX
Breaking News
5 May 15 01:47:03
$CCE $MSFT: Magazine: Coca-Cola, UPS among '100 Best Corporate Citizens ...: http://t.co/WDpHtEyViD
Nick Hortovanyi
5 May 15 01:34:46
Amazon Seen Dominating Cloud, Like IBM, WinTel Before http://t.co/sjT20shxVg $AMZN $IBM $MSFT $INTC $GOOGL
WLST.com
5 May 15 01:16:33
ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT) - TickerLens $MSFT #Microsoft,MSFT #wlst http://t.co/mZVliIidWf
TickerLens Microsoft
5 May 15 01:16:20
ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT) http://t.co/AlhCA07243 $MSFT
Chayton Falke
5 May 15 01:05:09
#Nasdaq100 #recent #market #exit #1: Sold $MSFT long for a 19.07% #gain in 20 days. #MSFT #forex #trading #stocks
Breaking News
5 May 15 00:58:02
$MSFT: ModernGraham Quarterly Valuation Of Microsoft Corporation (MSFT): http://t.co/rPLBH5zh9E
Tech Stocks SA
5 May 15 00:53:28
ModernGraham Quarterly Valuation Of Microsoft Corporation http://t.co/l84YkXB1vI $MSFT #MICROSOFT #WINDOWS
Quick Stock Ideas
5 May 15 00:53:27
ModernGraham Quarterly Valuation Of Microsoft Corporation http://t.co/wJ0ohoSu9x $MSFT #MICROSOFT #WINDOWS
Quantpost $MSFT
5 May 15 00:53:27
$MSFT News: "ModernGraham Quarterly Valuation Of Microsoft Corporation $MSFT …" http://t.co/6aUzrKhqBE Analyze: https://t.co/7rQB3RTv3C
Quantpost Technology
5 May 15 00:53:27
$MSFT News: "ModernGraham Quarterly Valuation Of Microsoft Corporation $MSFT …" http://t.co/vebyutIUhL Analyze: https://t.co/MpBTM9Ds44
Seeking Alpha
5 May 15 00:53:27
ModernGraham Quarterly Valuation Of Microsoft Corporation http://t.co/57t7TXAJa1 $MSFT #MICROSOFT #WINDOWS
Breaking News
5 May 15 00:32:02
$AAPL $CMCSA $MSFT $AMZN $LNKD $TWTR $YHOO $ORCL: Hedge Funds Ignoring Tech Drop Boost Bullish Bets to 1-Year High: http://t.co/Dt68MJOdQx
Dow Stocks
5 May 15 00:23:14
#Dow #stocks $MSFT Microsoft Daily:-0.85% Weekly:0.44% YTD:4.6% Trend:68 / 100 http://t.co/lYPgBkZPxO
FinancePress
5 May 15 00:16:49
$MSFT Microsoft Corporation (MSFT) To Unveil Two New High-End Smartphones: The ...: Microsoft Corporation (MS... http://t.co/inq4yXcq1F
Chayton Falke
5 May 15 00:15:09
Top Twenty Recent Exits #17: Sold $MSFT long for a 19.07% gain in 20 days. #trading #MSFT #forex #stocks
hoggson
5 May 15 00:13:39
RT @TweakTown: .@Microsoft Office 2016 public preview released $MSFT http://t.co/yN9tgDwPlI http://t.co/bVOXj5Dn1Q
Capital Market Labs
5 May 15 00:12:59
$MSFT EPS is Fading. #CML_MSFT #CML_EPS http://t.co/m8FcFhLZY5 http://t.co/Cg8PORU8M5
				
				
  +Follow December 12, 2013 8:44AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.

Login or Register

LOG IN